GAO: nobody’s minding store at the Universal Service Fund

The GAO says it would probably be a good thing if the FCC really, actually …

The Federal Communications Commission's messy, troubled, and financially unstable Universal Service Fund (USF) got another 2MB of brutally honest feedback on Friday, this time from the Government Accountability Office (GAO). The GAO's survey of the USF's High Cost (HC) program—designed to lower phone prices for rural and some urban consumers—concludes that HC's structure results in "inconsistent distribution of support to carriers in all states." That's a nice way of saying that the plan reimburses rural telephone and broadband providers that offer the same services for different levels of money, and the USF can't keep track of the discrepancies.

"There is a clearly established purpose for the high-cost program," GAO concluded, "but the FCC has not established performance goals or measures." Specifically, the agency hasn't set across-the-board benchmarks for its recipients for "intermediate and multiyear periods." Translation: the agency hasn't established meaningful expectations at all.

But that's not the worst of it. GAO basically says that the USF's audits of carriers aren't really audits. "Carrier data validation focuses primarily on completion and not accuracy"—a polite way of saying that USF auditors make sure all the data is submitted, but don't check whether it's accurate.

"These weaknesses could contribute to excessive program expenditures," the GAO concludes. Uh, yeah—like a program that now costs over $4 billion a year.

You need ambition

It is a fact that ever since the dawn of telephone service, rural consumers have been getting the short end of the telco stick. Alexander Bell's Gilded Age telephone system focused on the urban middle class: doctors, businessmen, high-class clientèle. Theodore Vail's AT&T did a little better during the Progressive Era, but not much—independents provided much of the rural service, endlessly battling with AT&T over long-distance interconnection. Rural service sank like a stone during the Depression, not to improve significantly until the 1960s. As late as 2002 it cost telcos three times more to provide rural phone access than it did to provide service to city dwellers.

Some believe the USF should be
blown up like the Death Star

Shortly after the Telecommunications Act of 1996 established the goal of universal service, the FCC set up the USF, which tithes interstate phone bills to support its high-cost, low-incomerural health care and schools and libraries programs. But nobody denies that the USF is a mess. Critics say that one reason its High Cost program is so troubled is that smaller competitive phone carriers get reimbursed based not on their actual expenses, but on the level of support that the big incumbent telcos receive. This is probably one of many reasons that the program's costs have ballooned of late, to $4.3 billion in 2007, a 153 percent jump between 1998 and 2007. More and more of that money, although not a majority of it, now goes to smaller firms.

Another reason for galloping costs, the GAO observes, is that the FCC doesn't keep HC recipients on a very tight leash. "12 years after the passage of the 1996 Act and after distributing over $30 billion in high cost programs support, FCC has yet to develop specific performance goals and measures for the program," the audit agency writes. The FCC doesn't establish intermediate objectives for providers, GAO says, a nice way of saying that the government doesn't actually lay out specific things it expects providers to deliver.

But perhaps the most important conclusion of the GAO report is that nobody really audits the cost records of these telcos for, well, the truth. FCC and USF data collection efforts only audit a small percentage of telcos, and "generally focus on completeness and consistency of carriers' data submissions, but not the accuracy of the data." In many instances the cost and line count data isn't verified. "Inaccuracies in cost and line count data, which are not uncovered through review, could facilitate excessive program expenditures," GAO concludes. Woah. Ya think?

The FCC responded to the GAO survey and says that it is already implementing some of the agency's recommendations. The Commission's Inspector General is presently auditing 650 USF program recipients, the FCC says: "As part of these audits, for the first time, the high-cost program is subject to statistical sampling and attest audits to determine compliance with the [Communications] Act and the Commission rules." Hope springs eternal.

Further reading:

Matthew Lasar / Matt writes for Ars Technica about media/technology history, intellectual property, the FCC, or the Internet in general. He teaches United States history and politics at the University of California at Santa Cruz.